THE PRICE OF OIL HAS INCREASED STEADILY AND THE BASIC REASON IS DISBALANCE

BETWEEN DEMAND AND SUPPLY. DUE TO LOCKDOWN THE DEMAND FOR OIL DECREASED
BUT AFTER THAT THE DEMAND INCREASED WHEREAS THE SUPPLY OF OIL WAS NOT
INCREASED LEADING TO A DISEQUILLIBRIUM
AS DEMAND IS MORE AND SUPPLY IS LIMITED THE PRICES ARE PUSHED UP LEADING TO
INFLATION IN PRICE OF OIL
BUT WHY IS SUPPLY LIMITED?
THERE ARE 2 MAJOR SUPPLIERS OF OIL- OPEC+ AND USA
OPEC+ has started relaxing production by providing additional 400,000 barrels per day per
month. Worldwide stockpiles are near to "normal" pre-pandemic levels, but OPEC+ is
reticent to add further supply at this time, despite pressure from big consumers such as the
United States, Japan, and India.
WHY IS OPEC+ RELUCTANT TO INCREASE SUPPLY?
The oil prices reached 85$ per barrel yet OPEC+ did not increase its supply as it is unsure
about future demand in 2022
It is concerned about new covid outbreaks in the 3rd wave of covid especially after Delta
variant that would decrease demand due to lockdowns
Weak members of the cartel including WEST AFRICA,NIGERIA AND ANGOLA have not met
their production quotas due to operational ,investment and technical challenges
Also at present it is believed largely and acc to FRANCISCO BLANCH the head on BANK OF
AMERICA said that all of this a very cleverly planned step for OPEC and their plan is working
perfectly for them
This is because the break even point of oil in these countries currently is around $70 or $75
per barrel and therefore at 75$ they are just breaking even
And therefore they have 0 interest in pushing back the price to $60 since it would be a loss
for them

USA is also a major producer of oil but its production is 1 MILLION barrel a day less than
previous year
The decrease in production is due to:
DEMAND FOR HIGHER FINANCIAL RETURNS BY INVESTOR FROM SHALE
DUE TO ESG (ENVIRONMENTAL, SOCIAL AND GOVERNANCE) CONCERNS
To elaborate more Joe Biden in his campaign stated that no more public lands would be
acquired for drilling as well as he will look into social costs of increasing dependence on a
non-renewable source of energy
Therefore he proposed a SOCIAL AND ENVIRONMENTAL BILL which is a $2 TRILLION BILL
with proposals to boost use of renewable sources of energy including boosting wind and
solar power and use of electric vehicles
It is due to climatic change regulations that the domestic production of crude oil in USA had
to be reduced
THE COMPANIES CANT INCREASE FURTHER SUPPLY BECAUSE AFTER SO MUCH
OVERSPENDING ON COSTLY DRILLING VENTURES ENORMOUS PRESSURE HAS BEEN PUT BY
WALL STREET TO MAINTAIN DISCIPLINE AND ARE THEREFORE FOCUSING ON INVESTING
MORE IN SHARE BUYBACKS AND PAYING DIVIDENDS
Oil corporations are hesitant to increase output since the demand picture is still quite
unpredictable, especially in light of climate change concerns Oil demand is likely to spike at
some point, but problem is no one is sure when and at what rate
Why is the Biden administration begging OPEC+ to add more supply when the United States
has extensive reserves and remains a top global producer? Biden must tackle two somewhat
conflicting agendas simultaneously — rising energy prices in the short-term and climate
change in the long term. He must address rising energy prices — gasoline pump prices are
now up over $1 a gallon during his administration to a seven-year high. But he also can’t be
seen by the progressive wing of the Democratic party as being pro-oil in promoting domestic
output. The net result is policies that look hypocritical. 
the administration is correct to lobby OPEC for more supply NOW because OPEC is sitting on
over 6 million barrels a day of spare production capacity that can be brought on quickly. The
same can’t be said for the fragmented U.S. oil sector, where hundreds of companies must
decide whether to pursue growth and move the needle on overall U.S. output. The U.S. oil
sector can’t do that in a snap like OPEC+ can. It’s more a process for the U.S. industry to
mobilize and increase production. 

HOWEVER OPEC HAS REFUSED TO INCREASE ITS SUPPLY TO MEET CURRENT DEMAND
US to release oil reserves in challenge to OPEC+
The US is to release 50 million barrels of crude oil from its strategic reserves in concert with
China, Japan, India, South Korea and the UK — an unprecedented, coordinated attempt by
the world’s largest oil consumers to tame prices that risks a backlash by OPEC+.
However, the oil market was initially underwhelmed by the details of the package — as
much of the oil would need to be returned to the stockpile by the refiners that buy it, and
international contributions were smaller than many expected.

After an initial dip in prices, oil gained more than US$1 a barrel.

Officials from the Saudi Arabia-led group, which is to meet to set policy next week, have
warned that they are likely to respond by canceling plans to boost their own production,
negating the addition of stockpiled oil onto the market.
At stake is the price of the world’s most important commodity, as US President Joe Biden
contends with the strongest inflation in more than a decade, a surge that is hitting his
approval ratings and risks undermining the US’ post-COVID-19 economic recovery.

The White House on Tuesday said that it had other tools at its disposal to bring down energy
prices, if needed.

Thirty-two million barrels would be issued from the US Strategic Petroleum Reserve as an
exchange over the next several months, while 18 million barrels would come from an
accelerated release from previously authorized sales, the White House said.

It represents one of the biggest drawdowns ever from the reserve, surpassing US
interventions amid Libyan unrest in 2011 and Operation Desert Storm in 1991.

he US would conduct the exchanges over several months, with oil companies taking
possession of the crude now and then returning supplies to the reserve when prices have
eased.

Senior administration officials said the two-pronged oil release plan, the result of months of
discussion and diplomacy, is tailored to the current market conditions, with oil prices
expected to dip in coming months.

The plan is one of the largest-ever releases from US reserves, eclipsing past interventions
that saw the US putting 30 million barrels onto the world market.

It also surpasses the rapid drawdown of 33.75 million barrels that was ordered in 1991,
amid Operation Desert Storm.

Asian countries joined the US in releasing oil, sending a political signal of support, but one
with little oil market value as the quantities involved were small, disappointing traders.

India said it would release 5 million barrels.

China did not disclose its contribution, but one Western official familiar with the matter said
it would be relatively small, in the range of 7 million to 15 million barrels.

South Korea said it would decide on details such as volume and timing after discussing with
partner countries, but indicated that it could be about 3.5 million barrels.

Japan indicated that it would release 5 million barrels or less.

The UK’s contribution is expected to be even smaller, the same official said.

The U.S. will proceed with its plan to release 50 million barrels of oil from its strategic
reserves despite a new coronavirus variant triggering a sharp drop in crude prices. 
“We are not reconsidering,” White House Press Secretary Jen Psaki told reporters Monday
at a briefing

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